U.S. Bets New Oil Sanctions Will Change Iran’s Tune

WASHINGTON — After three and a half years of attempting to halt Iran’s nuclear program with diplomacy, sanctions and sabotage, the Obama administration and its allies are imposing sweeping new sanctions that are meant to cut the country off from the global oil market. Many experts regard it as the best hope for forcing Iran to change its course.

On Sunday, the European Union is putting in place a complete embargo of oil imports from Iran, which was the Continent’s sixth-biggest supplier of crude in 2011.

Three days ago, the United States imposed a new round of sanctions that could punish any foreign country that buys Iranian oil. However, it has issued six-month exemptions to 20 importers of Iranian oil who have significantly cut their purchases, including China, which has openly opposed the pressure on Iran.

Even before these steps, Iran conceded last week that its oil exports were down 20 to 30 percent. Its currency has plunged more than 40 percent against the dollar since last year. But so far the escalating sanctions, which the Bush administration started and the Obama administration has intensified, have failed in their central goal of forcing Iran’s mullahs to stop enriching uranium. Negotiations have stalled, though it is unclear whether this is a tactical move by Iran or a collapse of the latest diplomatic effort.

On Friday, Iran’s ambassador to the United Nations indicated that the harsh new measures might not sway Tehran, saying negotiations were at a “critical point.” The sanctions indicate “that they are not willing to engage with us in a meaningful dialogue,” the envoy, Mohammad Khazaee, told reporters.

Still, President Obama and his European allies — with little help from the Chinese, who actually increased their purchases of Iranian crude in May — are placing a bet that another big turn of the economic screws may change Iran’s attitude.

“It is our assessment that the Iranians have not experienced deep enough sanctions, long enough to fully understand what their isolation means,” a senior administration official closely involved in strategy said Friday in an interview.

“The supreme leader,” the official said, referring to Ayatollah Ali Khamenei, “has not made the decision to deal,” even though the administration argues that it was the imminence of the newest round of sanctions that brought Iran to three rounds of negotiations in recent months.

David S. Cohen, Treasury under secretary for terrorism and financial intelligence, described the measures as particularly potent because they focus on the “lifeblood of Iran’s economy.”

“We’re going directly at their revenue, and making it increasingly difficult for them to access that revenue” by isolating their financial system, Mr. Cohen said.

Already Iran’s exports have declined to about 1.5 million barrels a day from about 2.5 million barrels a day last year.

The round of penalties that come into full effect on Sunday, some historians say, represent one of the boldest uses of oil sanctions as a tool of coercion since the United States cut off oil exports to Japan in 1940. That experiment did not end well: The Japanese decided to strike before they were weakened.

The measures, of course, are not the only tool in use. Mr. Obama has tried open appeals to the Iranian people and private letters to the supreme leader. And he accelerated the most sustained cyberattack on a sovereign state in American history, a covert program known as Olympic Games that sought to exploit vulnerabilities in Iran’s nuclear program.

Photo

A complex in Khuzestan Province in southwestern Iran is part of the country’s vast oil industry, suffering already from sanctions.Credit
Abedin Taherkenareh/European Pressphoto Agency

Even though the covert program has set Iran back and sanctions have made it difficult for the country to obtain high-technology goods, the Iranians have nonetheless added to their stockpile of enriched uranium. Iran now has enough to produce roughly five weapons, if it enriched the fuel to higher levels and could build a weapon. The Israelis are again asserting that Iran’s progress is about to tip it into a “zone of immunity,” where its program could not be stopped.

Mr. Obama keeps repeating that there is “time and space” to force a diplomatic solution, though he has been deliberately vague about how much time.

Mitt Romney has complained that the president has been “weak” on Iran, noting that as negotiations grind on, Iran is continuing to enrich uranium. But he has not been specific about what kind of additional pressure he would impose.

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R. Nicholas Burns, who helped design the Bush administration’s sanctions strategy, said Friday that the combination of the new American and European sanctions “are the toughest sanctions imposed to date.”

He continued, “We should give them a few months to have the kind of impact for which they are designed — to force Iran to negotiate more seriously.”

So far the administration has been successful with at least one element of its strategy: It has managed to cut purchases from Iran without raising the price of oil, a feat many doubted would be possible. It has helped that suppliers, including Saudi Arabia, Libya and Iraq, have increased their production. Another factor has been weakening global demand.

For the past six months, Washington has engaged in an intense diplomatic campaign to get big purchasers of Iranian oil, including India, South Korea, China and Japan, to reduce their volume of imports so that they do not find themselves facing sanctions.

Many countries grumbled but complied, particularly after Saudi Arabia and other countries made it clear they could replace the lost supply. Washington has thus far granted “waivers” from sanctions to 20 countries that the administration determines have cut their purchases significantly. The waivers must be renewed every six months.

The biggest holdout was China, which has strongly opposed the sanctions. “China is always against one country’s unilateral sanctions,” Hong Lei, a spokesman for the Foreign Ministry, said in a news conference in June. “Even less will it accept such unilateral sanctions to be imposed on a third country.”

On Thursday, Washington granted China and Singapore waivers, avoiding what could have been a tense standoff as the administration faced penalizing its biggest sovereign creditor. The Chinese, for their part, did not want to appear to be bending to American pressure.

Oil experts said that markets had already priced in the impact of losing Iran’s supply, and that there appeared to be plenty of production to meet expected demand through the summer.

The big question now is whether the new measures will change Iran’s attitude at the negotiating table. There was initial hope for an agreement when Iran met with the five permanent members of the United Nations Security Council and Germany this spring. But subsequent rounds of talks have gone nowhere.

The senior administration official said that Iran had given a “detailed response” to an American proposal for a cutoff in the production of uranium enriched to 20 percent purity, which can be converted fairly quickly to bomb-grade, and for a step-by-step dismantlement of its enrichment plants. But there remains “a wide gap,” the official said.

A meeting of technical experts is scheduled for Tuesday.

A version of this news analysis appears in print on July 1, 2012, on Page A6 of the New York edition with the headline: U.S. Bets on Changing Iran’s Tune With New Sanctions Aimed at Lifeblood. Order Reprints|Today's Paper|Subscribe